CODELCO’s El Teniente mine in central Chile. Chief executive Thomas Keller has told Chile’s Parliament that production will rise at the mine, where Amerigo Resources processes tailings in exchange for royalties.  Credit: Codelco

CODELCO’s El Teniente mine in central Chile. Chief executive Thomas Keller has told Chile’s Parliament that production will rise at the mine, where Amerigo Resources processes tailings in exchange for royalties.  Credit: Codelco

Chile's Copper Delays Flatten Output Expectations

Issue 27, January 2013

Chile, the world’s largest copper producing country with output in 2012 of 5.4m tonnes, equal to 27 per cent of global supply, is showing increasing signs of output congestion, flattening anticipated production increases.

Permitting delays have impacted seven of Chile’s largest copper projects in recent weeks, including expansion of Collahuasi, jointly-owned by Xstrata and Anglo American.

Rising costs have also dented the country’s project pipeline. Barrick Gold has suffered repeated delays at Pascua Lama, its gold-copper mine on Chile’s border with Argentina, inflating costs threefold in three years to $8.5bn. Also blaming costs, Antofagasta has terminated work at Antucoya, dropping 80,000 copper tonnes from 2014.

The delays lend support to prices and bode well for existing producers with rising production levels, including Amerigo Resources, the processor of tailings at state-owned giant Codelco’s El Teniente mine.

“Copper and moly production for 2012 were both records,” says investor and editor of World of Mining, James Kwantes. “They’re locked into lower power contracts and last quarter did a four-year labour agreement. Costs are fairly fixed, so any increase in the copper price goes to the bottom line.”

Founded by Codelco executives, the business boasts some of South America’s heftiest mining bigwigs, including Alberto Salas, president of the national mining lobby and Klaus Zeitler, chairman of Peru’s Rio Alto. It is currently negotiating with Codelco to process a second tailings pond and will publish production guidance this afternoon.

The company’s power agreement, effective this month, lifts it off variable rates and diesel generators, a common but costly feature of an industry that has overloaded domestic grid capacity. London-listed Aggreko, the world’s largest generator rental group, which supplies BHP Billiton and Codelco with intermittent power in Chile, remains another unlikely beneficiary of the country’s copper congestion.

“Amerigo is under the radar,” says Kwantes, “they don’t really promote themselves. The stock is viewed as a ‘junior’ even though the company is a profitable copper producer.” Valued at C$114m ($115m), Amerigo offers a rare yield in the mining sector, currently at 6.2 per cent.

“Any increase in the copper price goes to the bottom line.”
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